Libya Violence Deepens as Protestors Claim Control of Second-Largest City

Violence in Libya intensified as the government attacked protesters and rebels claimed control of the second-biggest city, Benghazi, after Muammar Qaddafi’s son threatened “rivers of blood” unless the uprising ends.

Security forces stormed “terror and sabotage hideouts” and urged citizens to help restore security, state television said, warning against “organized gangs that are destroying Libya.” Protesters said they had taken over Benghazi after clashes yesterday, the Associated Press said, citing witnesses. The International Federation for Human Rights said more than 300 people have been killed in the past week. Al Arabiya television said 160 died in violence in Tripoli, the capital.

In a state television address late yesterday, Saif al-Islam Qaddafi warned of the risk of civil strife with “hundreds of thousands of dead” if protesters don’t engage in dialogue with the government. He said the army will “impose security and get things back to normal, whatever the price,” and warned that the conflict may drive oil companies away. BP Plc halted exploration and Norway’s Statoil ASA closed its Tripoli office.

Libya, holder of Africa’s largest oil reserves, is the latest country in the region to be rocked by protests ignited by the ouster of Tunisia’s president last month and energized by the fall of Egypt’s President Hosni Mubarak on Feb. 11. Violence has flared in Yemen, Djibouti, Iran and Bahrain as governments sought to crack down on demands for change.

‘It’s Too Late’

“Saif al-Islam is perceived as the reformist face of Libya, ironically because he is his father’s son at the end of the day,” Karin Maree, a Libya analyst at the Economist Intelligence Unit in London, said in a phone interview today. “I don’t think he’s going to deliver. It’s too late for that, the violence has escalated too far now, so I don’t think he can really offer anything that would satisfy protester needs.”

The Quryna newspaper, based in Benghazi, denied reports by Al Jazeera and Al Arabiya television that warplanes fired at protesters in Tripoli. Al Arabiya said some army units have joined the protests.

Libya’s ambassadors in China, India, the U.K., Indonesia, Bangladesh, Poland and the Arab League resigned to protest the violence used against the demonstrators, Al Jazeera said.

The U.S. State Department today ordered its non-essential diplomats and their families to leave Libya and urged other Americans in the country to exercise caution.

Oil Surge

Oil surged to the highest in more than two years in London, with Brent crude for April settlement adding as much as 2.5 percent to $105.08 a barrel. It traded at $104.87 at 5:08 p.m. in London. Persian Gulf shares extended declines, with Dubai’s benchmark index dropping to a six-month low.

Protesters in Tripoli’s central Green Square were preparing for more demonstrations later today, the AP said. Quryna said they set fire to the People’s Hall. The newspaper also reported that the country’s top judicial official, Mustafa Abduljelil, said he resigned to protest the violence against demonstrators. Libya’s representative to the Arab League quit his post and sided with the protesters, Egypt’s state-run Middle East News Agency reported yesterday.

“This is not a regime that will compromise,” said Dirk J. Vandewalle, an associate professor of government at Dartmouth University, New Hampshire, and author of “A History of Modern Libya.” “Whichever way this goes, we can expect a good amount of chaos and bloodshed. This will be decided very quickly -- I think 48 or 72 hours at the most.”

‘Increasing Momentum’

Libya’s credit rating was cut one level by Fitch Ratings, which cited an “eruption of political risk evidenced by the increasing momentum of the popular uprising.” While the country has no debt and more reserves relative to the size of the economy than Saudi Arabia, it has “struggled to translate oil wealth into higher living standards and create jobs,” Fitch said, estimating unemployment at 20 percent.

Protesters across the region have focused on the same blend of economic ills, political repression and unelected rulers in power for decades.

In Yemen, the poorest country on the Arabian peninsula, President Ali Abdullah Saleh held a press conference in the capital, Sanaa, to rule out meeting the demands of protesters seeking an end to his more than 30 years in office. Demonstrators took to the streets for an 11th day as Saleh said their calls for regime change are “not logical.”

No Dialogue

Thousands gathered outside Sanaa University and in the southern provinces of Aden and Taiz, while followers of the Shiite Houthi rebel group joined in the protests by holding a demonstration in the northern Saada province, according to activists in Sanaa. The country’s main opposition group has rejected Saleh’s offer for dialogue as long as protesters are being attacked. At least five people have been killed.

In Bahrain, home to the U.S. Navy’s Fifth Fleet, opposition groups are drawing up demands and discussing the government’s call for dialogue, said Ebrahim Sharif, head of the National Democratic Action Society. Protests have been led by the Shiite Muslim majority, which says it is discriminated against by Sunni rulers.

Thousands of mainly Shiite demonstrators are camped in the central Pearl Roundabout in the capital, Manama, after tanks, armored personnel carriers and riot police withdrew on the orders of Crown Prince Salman bin Hamad Al Khalifa. Protesters have set up tents, a media center and stalls serving food and drinks, and banners called for democracy, regime change and unity among the Persian Gulf island state’s Shiite and Sunni communities.

More Protests

Bahrain’s credit rating was cut one level today by Standard & Poor’s Ratings Services, which predicted that protests against the government will continue. Yields on the country’s 10-year dollar bonds jumped 16 basis points to a record 6.79 percent.

Several international companies in Libya today announced evacuations or halted operations. Royal Dutch Shell Plc said it evacuated the families of personnel in Libya, and Statoil closed its offices and said it is evacuating expatriate workers. BP Plc suspended exploration in the Libyan desert. Production at the Nafoora field, operated by the state oil company, was halted because of a strike, Al Jazeera reported.

Shares in Italy’s Eni SpA, which produced 244,000 barrels of oil equivalent a day in Libya in 2009, fell 5 percent at 4:50 p.m. in Milan. The company, which also operates the Greenstream gas pipeline from Libya to Italy, said production at Libyan plants was normal and family of staff were repatriated.

Shokri Ghanem, chairman of Libya’s National Oil Corp., said in a phone interview that he had no information about a halt or disruption in crude output.

‘Realms of Freedom’

Saif Qaddafi offered dialogue with the opposition, a national debate on the constitution, higher wages and unemployment benefits and legal changes to “open up the realms of freedom,” and said the army had made errors in handling the protests.

Thousands of people demonstrating yesterday in Benghazi were met by gunfire from forces loyal to the regime, New York- based Human Rights Watch said, citing reports from witnesses.

“Benghazi is always known for resisting tyranny and diktats, it’s an obstinate place,” said Faraj Najem, a historian and author of “Tribes, Islam and State in Libya.” While Qaddafi’s regime has sought to nurture tribal rivalries, “there won’t be a conflict between east and west,” Najem said.

The leader of the opposition Front for the Salvation of Libya, Ibrahim Sahad, told ABC television that some army units in Benghazi had defected to join the protesters and were helping to protect them.

‘Appropriate Actions’

The U.S. has received “multiple credible reports that hundreds of people have been killed and injured,” State Department spokesman Philip J. Crowley said. President Barack Obama and aides are analyzing remarks by Qaddafi’s son, pressing Libyan officials to avoid violence, and considering “all appropriate actions,” according to a U.S. official speaking on condition of anonymity because the discussions were private

David Cameron, the U.K. prime minister, denounced violence against Libyan protesters as “appalling and unacceptable” during a visit to Egypt today, where he was the first Western leader to visit since the fall of Mubarak. Cameron used the visit to encourage Egypt’s army, which is running the country, to stand by pledges of a transition to democracy.

Cameron is also seeking to boost U.K. trade with the region. His government has revoked arms export licenses to Bahrain and Libya in recent days as security forces used violence. Britain was the second-biggest supplier of arms to Bahrain in the five years through 2009, behind the U.S., according to the Stockholm International Peace Research Institute, which monitors the weapons trade.

Saudi Risk

Analysts including the Eurasia Group, a New York-based company that assesses political risk, have warned of the risk of unrest spreading to Saudi Arabia, the world’s biggest oil exporter.

Saudi Arabia neighbors Bahrain and has a Shiite minority population in the east, where most of its oil is produced. It was the lowest-ranked Middle Eastern country in the Economist Intelligence Unit’s 2010 Democracy Index, which classified all Gulf nations as authoritarian regimes.

Swap contracts for Saudi Arabia, used as a measure of confidence although the country has no debt to insure, rose 5 basis points to 144 today and have almost doubled since the end of January, according to CMA prices. Saudi Arabia’s Tadawul stock index fell for a seventh day today, dropping 0.6 percent. The Bloomberg GCC 200 Index of Gulf stocks fell 0.4 percent to a four-month low.

“Perception of risk is only increasing,” said Alia Moubayed, senior economist at London-based Barclays Capital. “Investors will not take any sort of half solutions to be enough for calming their sense of risk aversion.”

To contact the reporters on this story: Mariam Fam in Cairo at mfam1@bloomberg.net; Ola Galal in Cairo at ogalal@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.

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